How to Make Tesla Cars

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with its global expansion, Tesla continues to dominate the auto industry with its use of electric and battery-powered cars.

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With Tesla's focus on electric cars, you may be surprised that Tesla's business is not so closely tied to a company, but that's not the case. To fully grasp the scale and scope of Tesla's business, we need to understand how the company earns its money, how it makes money, and what it's worth today.

How Tesla Makes Money

How Tesla makes money is a huge mystery, as most people never venture to find out what's happening in the way of Tesla's bottom line.

In their Q3 2018 filing, Tesla stated that their US GAAP gross profit for Q3 2018 was $112 million. In contrast, their non-GAAP net income was $139 million. Let's do a quick math to get a feel for how much Tesla earned as an operating business in Q3 2018.

Tesla will disclose their complete financials (GAAP and non-GAAP) in their Q4 2018 report.

The Way That Tesla Makes Money Is Surprising

Tesla's gross profit as an operating business is $112 million, while its non-GAAP net income is $139 million.

If this doesn't tell you something, then perhaps we can review how Tesla is able to earn $139 million on $112 million of revenue.

Tesla generates its revenue through two business segments. In their most recent quarter, Tesla received $6,791 million in revenue from the sales of cars and $4,103 million in revenue from services and other revenue. At the end of Q3 2018, Tesla had a total of 103,922 Model S, Model X, and Model 3 cars in inventory, so Tesla didn't have to sell a single car to generate revenue in Q3 2018. However, the Company did sell a lot of other goods, such as its energy storage products.

All this revenue is only possible through Tesla's gargantuan cash flow machine.

Tesla Sees Over $10,000 per Car Offered

An estimate for the number of Model 3s available in 2017 is given in the graphic below. Note that this estimated number is a rough estimate, but a very large one. In reality, it's probably a lot higher because there is no telling how many of the estimated 73,000+ Model 3s currently in inventory could be leased out.

Also note that these numbers only include the cars in inventory. The total inventory number is likely much higher.

For Model 3 and other Tesla models, Tesla has had to pay interest rates around 2.9% to 3.9% for more than a year now, despite having huge losses and no profits to speak of. This interest cost is only possible because Tesla is issuing billions of dollars in convertible bonds.

Now, the question becomes, how do they afford all of this interest expense and still have more money left over to make the loans payable?

Tesla's Financing and Financial Structure

A good chunk of Tesla's revenue comes from financing. In Q3 2018, Tesla had $3,392 million in revenue from their financing business. Of this amount, $2,406 million was from Tesla's consumer financing business, while $785 million came from leasing and finance. Let's check out Tesla's financial report to see exactly how much money Tesla makes by making their cars "available for leases, finance, and purchase by third parties."

As you can see, Tesla has about $2.9 billion in revenue in the third quarter from their financing business. Tesla shows $2.1 billion in interest income, so the gross profit for their consumer financing business was $690 million.

Let's analyze the money that Tesla collects by making their cars available to others for leasing, financing, and purchases.